3D CAD in Korea, Japan, Taiwan

Disclaimer: This document was created in 2000 and has not been revised since.

i. Initial Objectives

From senior government ministers touting the latest fiber-optic backbone investment policy to kids on the street carrying mobile phones, South Korea is obviously a nation obsessed with the Internet. The exceptionally strong growth figures (equivalent to 2% of the nation's population are signing-up to join the online community every month) are indicative of a boom market, but this is just the precursor to the peak growth phase, set to occur as broadband ADSL systems come on line this summer (2000) and the IMT-2000 broadband wireless standard consolidates towards the end of this year.

The unusually high projected growth in the broadband sector; especially the short time-span during which that growth is predicted to be achieved; is very relevant to the prospects for an ASP CAD CAM solution in the Korean market. Browsing the South Korean Internet today gives the general impression of very strong content in the consumer, B2C e-commerce and academic sectors (15% of South Korean users are registered with the EduNet ISP) but relatively little content in the B2B area.

Government ministers are proactively promoting e-commerce and business Internet use, investing billions of dollars in broadband infrastructure and interconnecting business and industrial parks, but the traditional "nuts and bolts" industrial and manufacturing sector is not making innovative or productive use of the Internet as anything more than an additional marketing channel. But this attitude will change: by the end of 2000 almost half of the South Korean population will be online in some form, 25% or more on broadband connections: that compares with total Internet use projections of about 25% in Japan. Increased domestic Internet use, especially broadband, will change mindset and level of expectation to correspondingly drive industrial use patterns: the manager accustomed to a near instantaneous experience on his home ADSL or cable connection will inevitably desire a similar or faster connection at his workplace. This may be difficult to envision in the US, where workplace connections are generally faster than those at home, but in Asia it is the norm (for example, my 512kb/s domestic connection is 4x NTT's "recommended" SME connection, the OCN Economy 128kb/s leased-line *2004 note - after just 4 years my home ADSL is now 24Mbps which is slow compared to the 40Mbps ADSL and 100Mbps fiber-optic now in widespread use throughout Japan!).

When considering the market-entry strategy for an ASP CAD CAM vendor in South Korea, it is critical to consider that this market is going to change dramatically during the next 6 - 18 months. The players who establish themselves as the market leaders during this period of explosive growth will create significant first-mover brand awareness which will allow them to survive and dominate the inevitable period of consolidation which will follow.

ii. Entry tactics

There are three distinct market possibilities for an ASP CAD CAM vendor in South Korea:

1. the SME component manufacturers (e.g. mold and die makers) market with similar dynamics to the Taiwanese market opportunity,
2. the super-conglomerate and direct-subsidiary intranet market, and,
3. the super-conglomerate and 3^rd-party supplier extranet market.

Each of the three markets requires a specific entry strategy.

The specific recommendations for initial entry into the South Korean market are:

• To address the SME market; perform an exploratory visit (or visits) to meet with representatives of each of the key groups but in particular with government officials and academics. The South Korean SME net market is, to an exceptional degree, being created and driven by the government and much of the investment is channeled into private startups via government affiliated research institutes and university laboratories. These people will know the most favorable industry contacts and will also be able to advise on the possibility of accessing domestic investment.
  Recommendation: an ASP CAD CAM vendor can probably take advantage of the apparent 'amateur' nature of the online CAD CAM communities and acquire one at relatively low cost.
• To address the super-conglomerate intranet market; identify the key technology promotion groups internal to the major conglomerates and create distribution/joint-venture relationships with these groups (the classic PTC, UGS, Dassault, SDRC supplier-chain strategy).
• To address the super-conglomerate extranet market; the strategy here is closer to that for the SME market, the objective being to find "friendly" distribution partners who already operate within the super-conglomerate extranet (probably a major CAD CAM distributor).
• Identify a local, or at least Asian resident, candidate, individual or corporate, to manage the market entry activities.
• Create a series of partnerships with local Taiwanese companies to provide initial positioning and market presence.
• Dependent upon initial results, plan to create a wholly owned or majority controlled subsidiary within 6 - 12 months.

Whichever market sector is addressed first, a local subsidiary will be necessary if an ASP CAD CAM vendor is to establish itself as a major player in this market. International IT vendors traditionally perceive South Korea to be the #2 Asian market after Japan and consequently most major IT companies, including CAD CAM software vendors, have established South Korean subsidiaries. In the Internet market the trend is even more pronounced with many e-commerce players choosing to establish their Asian HQs in South Korea. Three factors are driving those decisions:

• South Korea has a good supply of highly skilled software/system engineers,
• the often over-conservative and suspicious attitude of many Japanese managers towards e-commerce,
• the cultural, economic and technical difficulties of mounting a Chinese market entry (the "Next Big E-commerce Thing") from Japan.

While joint-partnerships also offer a short-term possibility, I am very skeptical of the effectiveness of any joint-partnership without the constant local presence of the foreign supplier. In the fast-moving Asian Internet markets there will be significant business risk in trusting to a 3^rd-party to achieve the required position and brand-awareness in the short window of opportunity that this market will allow, especially considering that the most likely future competitors (other CAD CAM software vendors) already have local subsidiaries.

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